"But the catastrophe models at the core of just about every aspect of hurricane insurance, from rates to regulation, are flawed.
Their creators warn the programs are imprecise, more useful for spitting out a range of possibilities than the single numbers insurance companies commonly select and cite as fact.
But even the ranges are suspect....
A Herald-Tribune review of regulatory filings and interviews with experts found ... [s]everal companies seeking rate increases [which] used models that left out data about safety features on the homes they insure -- factors that would have reduced their expected losses and undermined their request for higher premiums."
Some but by no means all Homeowner's Insurance Companies are seeking Premium Rate Increases based in part on selective Computer Models.
These Computer Models are input by organizations which sell them to Homeowner's Insurance Companies for use in making Premium Rate Requests.
Computer Models recently submitted to the Florida Office of Insurance Regulation with Homeowner's Rate Hike Requests reportedly predict continuous Hurricane Damage in Orlando and West Central Florida. These are the Computer Models sold to some of the Homeowner's Insurance Companies which are using them as a reason for Rate Increases. Newspaper reporters noted for their expertise with Insurance issues who have reported on this fact include, e.g., Jeff Harrington, "Five Reasons That Florida Homeowners Insurance is Still Getting More Expensive" (St. Petersburg Times Online, May 31, 2011); Julie Patel, "Home Insurers Request Rate Hikes" ("House Keys" Blog on Sun-Sentinel.com, posted Monday, June 13, 2011); Paige St. John, "Property Insurers Seeking Major Rate Increases" (Sarasota Herald-Tribune Online, Monday, June 13, 2011).
The Computer Models at issue are not based on historical fact. If they were, they would reflect the actual experience in Central Florida with Hurricane Damage: 3 in 1 year (2004) and none other within living memory before or since.
Instead, this computer output is based on input of speculation and opinion. The opinion seems to be that the "Perfect Storm" could hit Orlando and if it did, the resulting Damage would be great, so before any such things happen let the Homeowner's Insurance Companies which paid for these selective Hurricane Computer Models, charge higher Premiums.
Hearings are reportedly required by Florida Law if Rates are based in part on unauthorized Computer Models. If Hurricane Computer Models are not authorized, then Florida Law provides Floridians with certain protections. With respect to any unauthorized Hurricane Computer Model filed as a part of any pending Rate Request, the author has provided the following letter concerning the applicable requirements of Florida Law to the Florida Office of Insurance Regulation (Department of Insurance), below.
Please Read The Disclaimer.
To the OIR:
Increased premiums are aided by Computer Models that project catastrophic Losses on a more frequent basis than they occur. These are Computer Models that are not authorized by State Government, in part because these unauthorized Computer Models are often wrong and, they tend, in addition, to be predicated more on opinions and projections than on demonstrated facts. Nonetheless, these Computer Models favor the imposition of high premiums because they are used to predict more catastrophes which trigger catastrophe claims or "CatClaims" in greater numbers and for more dollars.
Insurers making a rate filing requesting authority to charge higher Premiums must use Models "found by the commission [Florida Commission on Hurricane Loss Projection Methodology] to be accurate or reliable to determine hurricane loss factors for use in a rate filing". Florida Statute Section 627.0628(3)(d).
To the extent that this particular rate increase request is based on a Computer Model or Models, it must be based on Models found by the commission to be accurate or reliable to determine hurricane loss factors for use in a rate filing, as a matter of Florida Law. If not, there can be no rate increase in response to this particular request to the extent that it is based on Computer Models.
Thank you.
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